Online Help with Activity Based Accounting Assignment
If you are pursuing an accounting related course, you have probably come across an activity-based accounting assignment. Activity based accounting is a method used to determine all the operations carried out by a firm. This practice outlines the relationship between costs, products, and other activities. If you are struggling with your activity based accounting assignment, your only stop should be here at EduAssignmentHelper.com. We are a renowned provider of the best accounting assignment help on all topics and disciplines.
The Basics of Activity Based Accounting System
Before handling any activity based accounting assignment, you need to know and understand what the cost of the product is. The cost of a product is the sum of all expenses incurred to produce and supply the product to the consumers. Here are some of the basics of activity-based accounting system that you should have at your fingertips:
- There is no cost directly associated with production
- Products and services consume the activities of the company
- Activity based costing traces activity expenses to determine the costs of products
- Activity based accounting assigns costs that are showcased in the physical dynamics of the firm
- This type of accounting allocates indirect support resource costs to business processes, consumers, products, and activities.
- Activity based costing recognizes that the resources of an organization are required to provide a wide range of support activities and not only for the physical production of product units.
The Advantages of Activity Based Costing to the Firm
According to our highly experienced and knowledgeable accounting professionals, activity based costing plays a significant role in companies that offer tailor-made products and services to their consumers. This is because, during the production of such customized products, activity based costing is needed to assign the actual indirect costs to the product and determine its real cost. Here are some of the benefits that companies reap when they use activity based costing system:
- The system is reliable when the firm wants to determine the cost of a product. Activity based costing emphasizes on the cause and effect relationship between activities and costs during the production of goods.
- Activity based costing sets a fair and precise selling price of multiple products. It allocates overheads while considering the crucial cost drivers.
- This system regulates and monitors activities, thus making the control of both fixed and variable overheads easy. Also, it offers an opportunity to control the overhead costs
- Activity based costing provides critical and sufficient information to the owners of the business, which can be used to make decisions regarding the profitability of different lines of products.
Designing and Implementing Activity Based Costing System
Students of accounting should understand how activity based costing is executed efficiently by businesses. Our activity based accounting assignment help experts explain below how the system takes shape:
- Come up with the cost objects.
- Determine the direct costs such as direct expenses, direct labor, and direct raw materials
- Finalize on the allocation bases that should be used for overhead costs
- Identify the overhead costs associated with the selected bases
- Compute the price per unit
- Calculate the overhead costs assigned to products
- Determine the cost of products
Areas of implementation
Our activity based accounting experts say that the activity based costing system should be engineered in the following areas:
- Customer diversity
- High overheads
- Stiff competition
- Multiple products
- Service diversity
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An activity driver is used to determine the relationship between the cost of objects (products and customers), and activities. It is selected with regard to the subjective trade-off between the cost of measurement and accuracy. If you are not familiar with this type of concept, we recommend that you get our activity based accounting assignment help service.
The levels of activities associated with activity based costing system
There are several levels that companies should engage in while designing and implementing the activity based costing system:
- Unit Level Activities – These activities include direct costs such as the direct cost of raw materials, labor, and maintenance of machines.
- Batch-level activities – These are the costs incurred when a batch of units are manufactured. They include quality test costs, cost of machine setup, and purchase orders.
- Product-line activities – It includes costs as a result of changes in the product, storage costs of each line of product, and the cost of engineering changes made on the line of assembly.
- Facility support activities – These are the costs incurred as a result of administrative activities. For example, the depreciation of the building in use, taxes on properties, security, employee’s salaries, and insurance.
Some of the challenges faced by companies while implementing activity based costing system
From the information above, it is clear that activity based system is applied along with various activities. However, many companies often face hurdles when executing the process of activity based costing:
- The top management must approve the initial plans of performing an activity-based costing system. It may require patience and time. The first step is to make inquiries from the supporting staff.
- The design and implementation of an activity based costing system brings together a cross-functional team of professionals such as IT, accounting, production, marketing, finance, and engineering departments.
- The company must outsource or hire a consultant to take care of the implementation of the activity based costing system to avoid wastage of time and resources.
- The firm must seek the advice of an expert when deciding on the activity based costing software to be implemented.
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Indicators that a Company Needs Activity based Costing System
Based on the following signs, you can know whether a company needs to implement an activity based costing system. You should execute the system when:
- Direct labor makes up a small percentage of all the costs (total cost)
- It is difficult to explain the product line profit margins
- There is an increase in sales but a decline in profits
- The product cost margins are not supported by the line managers
- Pricing decisions are not made based on cost reports
- Competitors do not sell some of the products that have registered high-profit margins
The disadvantages of activity based costing system
The following are some of the limitations encountered by business who implement an activity-based costing system:
- The overall activities that affect costs are not easy to identify
- Most companies find it challenging to choose the most suitable cost driver
- Evaluating costs based on activities is a complicated task
- Activity based costing system does not favor small manufacturing concerns
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How EduAssignmentHelper.com Helps students with their activity based accounting assignments
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